Annualized Total Return

DEFINITION of 'Annualized Total Return'

The average amount of money earned by an investment each year over a given time period. An annualized total return provides only a snapshot of an investment's performance and does not give investors any indication of its volatility. Annualized total return merely provides a geometric average, rather than an arithmetic average.

BREAKING DOWN 'Annualized Total Return'

A mutual fund could earn returns varying from 3 to 5% each year and have an annualized total return of 3.995%. On the other hand, a fund could also be much more volatile, losing 3% in one year, earning 12% in another and have an annualized total return of 4.23%. The difference is the first fund would offer steady returns while the second would offer widely fluctuating returns.


Annualized Return = [(1+R1)*(1+R2)...*(1+Rn)] ^ (1/n)


Where R = annual return for a given year

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